Several U.S. regulatory agencies are investigating the Florida unit of Banco Espírito Santo SA, according to bank officials, the latest front in a sprawling, multinational effort to untangle the finances behind the collapsed Portuguese business empire.

The Securities and Exchange Commission and the Federal Deposit Insurance Corp., along with Florida's financial regulator and a Wall Street self-regulatory organization, are looking into the Miami-based bank's business with an Espírito Santo bank in Panama, according to the bank officials. Virtually all of the Panama bank's business was with various parts of the Espírito Santo group and family, according to Panama's financial regulator, which seized the bank in July.

"A lot of things were unearthed that were inappropriate, and now I'm trying to fix that," said
G. Frederick Reinhardt,
chairman and chief executive of Espírito Santo's Miami bank. Mr. Reinhardt, who joined the bank in 2012, said it reported the Panama transactions to the U.S.-based Financial Industry Regulatory Authority, or Finra, when the bank discovered them last year.

At the heart of the Espírito Santo saga is the group's web of interconnected financing arrangements. Portuguese regulators, which bailed out and broke up Banco Espírito Santo last month, suspect that for years Espírito Santo used financing vehicles in places such as Luxembourg and the British Virgin Islands to issue debt, which was then sold to the bank's customers, according to people familiar with the investigation. Those regulators have alleged that customers didn't always know what they were purchasing or what the risks were, and that, at times, some practices broke regulatory rules. Portugal's central-bank governor has described the bank's activity as fraudulent.

The Miami bank, known simply as Espírito Santo Bank, operates out of a single branch in a 36-story skyscraper owned by another Espírito Santo company. The bank caters to rich South Americans, helping manage their wealth and invest in Florida real estate. It reported $751 million in assets on June 30 and posted a $943,000 net profit for the first half of the year.

Despite its relatively small size, the Miami bank has played an important role in the Espírito Santo empire. After the Portuguese government nationalized Banco Espírito Santo in 1975, the Espírito Santo family set up shop in Miami to slowly rebuild its business—a process that culminated with the family buying the Portuguese bank back from the government in 1991.

The manner in which wealth managers at the Miami bank—including
Jorge Leite Espírito Santo Silva,
the Espírito Santo family's top representative in the U.S.—conducted business with clients of the Panamanian bank violated the Miami bank's internal rules and might have breached state and federal banking and securities laws, current and former bank officials said.

Mr. Espírito Santo, who served as the public face of the bank when it touted its family heritage in advertisements and marketing brochures, was dismissed by the bank on July 22 for failing "to adhere to internal policies and procedures of the firm relating to customers of firm affiliates," according to a filing with Finra.

Mr. Espírito Santo didn't respond to requests for comment.

In an Aug. 6 letter to Mr. Reinhardt, Mr. Espírito Santo said his termination "appears to have been the culmination of a campaign on your part to see me removed from the Espírito Santo Bank, and to use me as a scapegoat for issues over which others have always had principal responsibility."

He said he had repeatedly cited "concerns with the deeply flawed internal review that you have spearheaded," which was "characterized by unfair procedures and erroneous findings." The letter was provided to The Wall Street Journal by Florida's regulator.

A spokeswoman for the bank said Mr. Reinhardt wasn't available to comment. She added that the bank doesn't comment on human-resources issues but that the letter "is clearly one of sour grapes."

The bank, regulated jointly by Florida and federal regulators, encountered problems over the years stemming from its practice of selling debt to customers of other Espírito Santo companies.

The collapse of Banco Espírito Santo, whose Lisbon offices are seen above, has sent shock waves through Europe's financial markets. Published Credit: Associated Press
AP

In the early 2000s, Espírito Santo Bank helped sell to Espírito Santo group customers in South America and Europe around $140 million of debt that later turned out to be worthless because of a fraud involving an affiliate of the Miami bank, according to company filings. Banco Espírito Santo's ultimate parent company, Espírito Santo International SA, picked up the tab and repaid the customers.

In February 2013, Finra fined E.S. Financial Services, the Miami bank's broker-dealer arm, $200,000 for selling customers more than $140 million in commercial paper guaranteed by Espírito Santo International without fully explaining the risks. ESFS didn't admit to or deny the findings. Finra said no customers lost money.

The focus of the current federal and state probes, which got under way late last year, is the role played by the bank in doing business with at least one other part of the Espírito Santo network, according to bank officials.

Mr. Espírito Santo sat on the Miami bank's board and was chairman of the Panama bank's board, according to regulatory filings. About 96% of the Panama bank's clients were people or companies related to the Espírito Santo group, according to Panama's regulator. A spokeswoman for Espírito Santo Bank declined to comment on the Panama regulator's statement.

An internal investigation by the Miami bank turned up 30 to 40 transactions over the past decade that Mr. Espírito Santo and other relationship managers conducted directly with the Panama bank's customers, people familiar with the probe said.

Dealing directly with clients, rather than the bank dealing with them itself, ran counter to internal rules and the terms of Espírito Santo Bank's correspondent-banking relationship with ES Bank Panama, the people said. In such relationships, banks in different countries agree to process transactions for one another, such as clearing wire transfers and exchanging currencies.

The findings led to Mr. Espírito Santo being fired in July, the people said. Around the same time, as the Espírito Santo empire unraveled, the Miami bank's customers pulled more than $200 million in cash from deposits and brokerage accounts, according to bank officials. Banco Espírito Santo, itself facing a liquidity crisis, stepped in with a loan to the Miami bank, the officials said.